NEW DELHI: The second-generation (2G) spectrum sale beginning on Monday will see a 'muted response' from the industry, and will not extend beyond a day or two, executives with the five companies participating in the sale process say.

The lacklustre response, which has already forced the Centre to cancel the CDMA airwaves auction in the 800 MHz band, will result in a significant fall in the Centre's target of garnering Rs 40,000 crore from the sale process, executives with companies add.

Only five companies, which include the three incumbents - Bharti, Vodafone and Idea Cellular - along with Videocon and Telenor, are participating in the GSM auctions, and none of them are bidding for a pan-India airwaves. Industry executives, who declined to be named, said the government may fall short of its targets by as much as 50%.

Besides, the government is also set to be dragged to court over a series of policy decisions it took leading up to the auctions, ensuing that the turbulence in the sector is set to continue into the foreseeable future.

The Centre's legal challenges are set to increase further after the Supreme Court last week slammed the government for not selling all spectrum vacated by companies whose permits were cancelled earlier this year, even as the apex court said it will continue hearing this case on November 19. While the apex court's order earlier this year quashing 122 permits issued by former telecom minister A Raja freed up over 430 MHz of 2G airwaves on a pan-India basis, the government has decided to limit the sale to 271 MHz.

If the court orders the Centre to auction all spectrum freed up the quashed permits, it will lead to the end of the government's plan to reallocate airwaves, also known as refarming, when the mobile permits of incumbents come up for renewal beginning 2014. Refarming involves redistribution of the highly efficient airwaves in the 900 MHz band, largely held by incumbents such as Bharti Airtel, Vodafone and Idea, and substituting them with frequencies in the 1,800 MHz frequency.

Auctions, a Subdued Affair

Recently, the chairman of Bharti Airtel, India's largest telco by customers and revenues, had said that the reserve price for 2G airwaves in the upcoming auctions was 'too high' and added that this would force the bidding process to be 'over in the first day itself'. He had also ruled out a repeat of the 3G spectrum sale in 2010, where telcos bid aggressively stretching the auctions to 35 days. "There is no need to be aggressive," he had added.

Industry executives said that Bharti will bid for additional spectrum in only a few 'C category circles' and added that Vodafone, too, is likely to follow a similar methodology. "Telenor and Videocon, which lost their permits, may bid in nine and about three circles, respectively, an industry executive added. The 3G and broadband wireless airwaves sale in 2010 had fetched the government over Rs 1,05,000 crore.

"We believe that top seven service areas are unlikely to attract any bids given the high reserve price. Bharti and Vodafone need not bid in auction as they do not have any cancelled licences. For Telenor and Videocon, we do not think there is any business case at these reserve prices," UBS Investment Research said in a recent note to clients.

India is selling a minimum of 10 MHz of airwaves in all regions and will add an additional 3.75 MHz in all circles, except the metro cities of Delhi and Mumbai, based on demand. But, telecom department sources admit that the additional 3.75 MHz may not be required in most circles.

Policy turbulence

While the government at its highest levels - the Empowered Group of Ministers (EGoM) headed by finance minister P Chidambaram and the Union cabinet - is confident that it has resolved all key policy issues prior to the auctions that begin on Monday, operators are set to challenge these decisions in court prolonging the ongoing uncertainty that confronts the sector.

GSM operators are set to challenge the recent decision by the EGoM that allows them to retain only 2.5 MHz of the more efficient 900 MHz frequency band at market rates at the time of licence renewal. The Cellular Operators Association of India, the industry body representing GSM operators, is of the view that the government failed to undertake proper consultations with the industry on refarming, 'despite sector regulator Trai admitting that the move would have a significant impact on live networks, coverage and connectivity for hundreds of millions of mobile subscribers'. Besides, the COAI is also of the view that mobile permits can only be extended, and not renewed under a new set of conditions where telcos have to surrender most of their efficient airwaves in the 900 MHz band.